Each member of a channel of distribution adds a markup to create the price at which they will sell the product.
In the standard supply chain of manufacturer to distributor to retailer, one of the most consistent challenges is marking up prices so that companies return a profit while also staying competitive.
For manufacturers, markup is typically determined by the bill of materials. Once they know their bill of materials, they will mark it up however much profit they want – typically 15-20%.
The average wholesale or distributor markup is when distributors raise the selling price of their products in order to cover their own costs and make a profit. Distributor markup is generally 20%, but depending on the industry, the markup could be as low as 5% or as high as 40%.
A large factor is the market value of the product when sold at retail, the third level of the chain. The amount a customer is willing to pay for a product can be the starting point for determining realistic markups and profit margins back upstream.
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